Tax Law (Questions About Taxes)/Car allowance

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Expert: Richard Fritzler - 9/3/2013

QuestionA company has traveling employees who are required to use their own cars for business purposes. The company reimburses them via car allowances only, accountable method. The car allowance is less then what would be mileage reimbursement. All employees agree as part of their employemnt that they will use their cars, will drive up to specified number of miles per year and receive monthly car allowance amount. Does the company car allowance have to match IRS mileage rate times the number of business miles driven? Could the company be challanged? How would it differ in CA? Thank you

AnswerHave you documented all of this? that the employees have agreed? that the policy is set in writing? Resolutions, agreements, etc.

If that is the case then it is completely valid. Reimbursements to employees cannot exceed government limits, or if they do, then the excess is attributable as income. But there is nothing disallows it being less than Government limits.

So the IRS won't care. Does that mean that an employ can't make an argument "that they deserve more"? Nothing keeps them from trying. All they have to do is find one area in which you are lacking support and that would be the area of attack.

Most business owners aren't ready for an attack, they haven't fortified their defenses. Mostly that is in compliance and documentation.

California might be more conciliatory toward the oppressed worker, and given an opportunity, might be more likely to find a way for you to compensate all of your employees, as compared to maybe North Dakota.

In either state, if you have all the proper agreements and documentation, then you are protected.

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Thank you so much to a quick and detailed response. You have answerd exactly the inforamtion I was looking for. Much appricate it. Sincerely, Mike.

Richard Fritzler

Expertise

Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.

Experience

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

OrganizationsNational Small Business Owners Association.PublicationsContributing author to "The Corporate Standard Newsletter".